What Makes Up the NASDAQ Composite?

You will see the current values for the three major stock indexes, the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite, on the Home page of any major financial website. As the youngster of the major stock indexes, the NASDAQ Composite is often viewed as an indicator for the newer sectors of the economy.

NASDAQ Stock Exchange

The two major stock exchanges in the United States are the NYSE Euronext and the NASDAQ. The NASDAQ launched in 1971 to provide electronic and listing services for companies that had been trading over-the-counter, not on any exchange. The NASDAQ became the listing place for many of the new and innovative companies of the high tech era. Companies such as Intel, Microsoft and Apple initially raised money by listing on the NASDAQ and remain on the exchange today. The NASDAQ Composite stock index is designed to track the value changes of the full NASDAQ market.

NASDAQ Composite Components

The NASDAQ Composite index includes almost every security listed in the NASDAQ exchange, over 2,500 in total. Included in the index are all listed common stocks, limited partnerships, real estate investment trusts and American Depository Receipts. Not included in the index are any closed-end funds, exchange-traded funds, convertible securities, preferred shares or derivative securities listed on the exchange. The NASDAQ Composite is classified as a broad-based stock market index.

Market Weighting

The NASDAQ Composite tracks the stocks in the index with a market capitalization weighting of each security in the index. This means the larger companies listed on the NASDAQ exchange have more influence over the index value than the smaller companies. At the time of publication, the 10 largest companies listed on the NASDAQ made up 37 percent of the total index value. Apple -- the most valuable company in the world -- accounted for 12.5 percent of the NASDAQ Composite value. Technology companies accounted for just under 50 percent of the index's value, with consumer services listed as the second largest sector, making up 18 percent of the NASDAQ Composite.

Composite vs. NASDAQ 100

There are two NASDAQ exchange focused stock indexes: the NASDAQ Composite and the NASDAQ 100. It is important to understand which one is being discussed. The NASDAQ 100 index tracks the 100 largest non-financial stocks listed on the NASDAQ exchange. The NASDAQ Composite index is the most widely followed of the two by general market participants. The NASDAQ 100 is very focused on the technology sector, and is a widely-held tracking index for futures, options and exchange-traded fund trading.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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